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EMIR

Uncleared margin rules – Commission endorsement of changes and delays

The European Commission have endorsed the latest draft Regulatory Technical Standards on the rules specifying the working of mandatory margin on uncleared derivatives (see here). These rules, which are part of EMIR, require variation margin and initial margin to apply to derivatives trades that have not been cleared by a CCP under the EMIR Mandatory Clearing rules. They will ultimately apply to all Financial Counterparties and Non Financial Counterparties over the clearing threshold (NFC+). They are the European version of the principles outlined by the BIS and IOSCO (see here).

The Commission have written this letter, agreeing to the delay to the start of the rules suggested by the European Supervisory Authorities (ESAs) several weeks ago (see this article on the Bloomberg web site). They have also requested several other changes. This means that unlike in other global jurisdictions, the rules will not start on September 1st. The Commission have produced an amended draft RTS (see here) and the ESAs now have 6 weeks to resubmit the draft. This article on the DRS web site provides an explanation of the new timetable.

Many  energy and commodities market participants will eventually be affected by the rules. Initially those who are currently NFC+ or FC will be affected, firstly by the variation margin requirements and then eventually by the initial margin requirements. However, once MIFID II starts, several market participants are likely to become financial counterparties due to the loss of exemption, primarily due to not meeting the requirements of the Ancillary Activity test. Those who retain the exemption may breach the clearing threshold, thus becoming NFC+, due to the possible loss of the hedge exemption under the EMIR review, if the changes are adopted.

It is therefore worth being familiar with the rules, and being prepared for the capital management and operational issues that will arise out of their introduction.

About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on the regulation of the commodity, energy and financial markets. He has more than 23 years of experience in the financial, energy and commodity markets, covering regulatory compliance, credit, risk and financial technology. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy and Commodity Regulation. Before that, he founded Coherence, a consulting firm specializing in credit risk in commodity and energy trading as well as software product management. The credit practice ultimately became part of Sirius Solutions, where he was the Managing Director of Europe. He has also held management roles at KWI and Iris Financial, among other organizations. Mr. Handler holds a degree in computer science from Imperial College, University of London.

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